SolarEdge marked a strong third-quarter European revenue record, but COVID-19 delayed the launch of its batteries.
CEO Zvi Lando said on the third-quarter earnings conference call that SolarEdge is unlikely to deliver its own batteries before the beginning of 2021. (Credit: SolarEdge)
SolarEdge is feeling the pressure of the COVID-19 pandemic in the form of a slower-than-expected recovery of customers in the commercial solar market. The pandemic has also delayed the company's launch of residential battery systems because SolarEdge aims to compete with micro-inverter rival Enphase and other competitors in the fast-growing home solar plus energy storage system market.
Despite this, the Israel-based company announced strong third-quarter results on Monday, thanks to growth in its residential sales of solar inverters and power optimizers in North America and Europe. Driven by Europe’s record revenue of 165.6 million U.S. dollars, total revenue was 338.1 million U.S. dollars, an increase of approximately 2% over the previous quarter and higher than the 144.3 million U.S. dollars in the previous quarter.
CEO Zvi Lando said on Monday's earnings conference call that although North American revenue declined slightly from the second quarter, the installation rate and sales rate of its distributors increased. But he said the recovery from the pandemic-related slowdown in the second quarter did not affect the commercial sector as quickly as the residential sector.
“In Europe and the United States, and even in Australia, the recovery speed of commercial installations is slower than that of residential buildings, and the inventory in the channels is still high,” he said. The non-GAAP gross profit margin (measured revenue minus cost of sales) of its solar business was 34.8% in the third quarter, higher than 33.8% in the previous quarter, but lower than 35.4% in the third quarter of 2019.
Compared with Enphase, the main competitor of North American solar panel-level power electronic systems, SolarEdge's exposure in the commercial solar field limits its gross profit margin and revenue. According to Wood Mackenzie's US photovoltaic rankings, as of the first nine months of 2019, SolarEdge's share of the US market was approximately 60%, while Enphase's share was approximately 20%.
Lando said that COVID-19 delays and travel restrictions have also delayed the launch date of SolarEdge's highly anticipated residential battery system by "a few months." Although SolarEdge hopes to start shipping in the fourth quarter, it is more likely to be launched in early 2021, and battery-related revenue will be postponed to the second and third quarters of next year.
SolarEdge is eager to bring its batteries to the market to meet the growing demand for residential solar plus energy storage systems in major US markets, and to obtain additional revenue from battery sales achieved by competitors such as Tesla, Sunrun, SunPower, and Generac. Enphase launched its own residential battery system this summer and is expected to sell a 50 MWh system by the end of this year.
At the same time, SolarEdge is a partner of many residential solar installers and has been increasing its share of the inverter market to serve their batteries. Lando said that in the third quarter, the company delivered about 6,500 Energy Hub inverters in the United States and more than 8,000 in Europe and Australia. According to Lando, the DC-coupled residential solar system installed by SolarEdge serves third-party batteries (usually LG Chem or Tesla models), which has increased to about 50,000 so far.
SolarEdge also announced a partnership with Schneider Electric last month to integrate its inverters with Schneider's Square D energy system, which is a combination of electrical panels and energy management platforms. These types of integrated systems are becoming more and more important because customers need more control over batteries for backup power, especially in markets such as California, which are facing the threat of preventing wildfires from blackouts.
Lando said that SolarEdge has also expanded its competitive position with Sunrun, Generac, sonnen and other companies that connect solar cell systems to virtual power plants to meet grid needs, with customers in the United States, Europe and Australia. It recently launched a pilot project involving frequency-triggered power cuts at commercial sites, which is its first non-residential grid service project.
Even so, SolarEdge's solar business still accounts for the vast majority of its revenue. The continued weakness in commercial solar sales caused the company to lower its fourth-quarter revenue forecast to between 345 million and 365 million U.S. dollars, which was lower than the consensus analyst consensus estimate of 390 million U.S. dollars.
"In the past few quarters, our business revenue has been declining and will not pick up in the fourth quarter," Lando said. However, SolarEdge predicts that there will be some relief next year. "We believe that in the challenging period of 2020, the same strength to serve us in terms of our geographic distribution and product diversification will put us in a favorable position in 2021."